Fears of a credit default in Greece and overextended equity markets in China have given investors added reason for concern. A collapse in the Chinese markets or a Greek exit from the eurozone could trigger a flight to quality and lead to global contagion. There is some solace to be found in the ECB’s decision to extend $78 billion in liquidity to Greek banks, but this, too, is likely to depress European interest rates and prop up the dollar, in my view.
Potential implications for investors
As we move into a historically weak period, investors are clearly facing many headwinds. But even with rich valuations, there is still room for price-to-earnings multiple expansion. I believe the macroeconomic conditions outlined above make a compelling case for low volatility investing. Of course, low volatility cannot be guaranteed. After speaking with a financial advisor, investors may want to consider adding low volatility equity strategies to their portfolios, including the PowerShares S&P 500 Low Volatility Portfolio (SPLV). SPLV invests at least 90% of its assets in the lowest realized volatility common stocks of the S&P 500 Index over the past 12 months.
1 Source: Bloomberg L.P., FactSet
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Important information
A stock’s price-to-earnings multiple (also known as its price-to-earnings ratio) measures its valuation. It divides a stock’s current share price by its earnings per share.
Volatility measures the amount of fluctuation in the price of a security or portfolio. Volatility was measured using standard deviation of returns.